Last updated: May. 31, 2017
Canadian Farm Business Facts
There are a lot of different farm tax breaks that Canadian farmers can take advantage of. The Canadian government provides farmers with programs like AgriStability and AgriInvest, that help protect their operations from a drop in income. On top of that, Canadian farmers can deduct all of the usual business expenses.
But because agribusinesses are so unique, Canadian farmers are entitled to claim tax deductions that other businesses cannot, including veterinary costs, breeding fees, and the cost of fertilizers and lime.
Not all farmers can make the same deductions though. It all depends on whether you are engaged in full-time farming, part-time farming, or operate a hobby farm.
Determining whether you operate a full-time farm, part-time farm, or hobby farm is not easy to define. That’s because the Income Tax Act doesn’t clearly define what a full-time, part-time or hobby farmer is.
But the Canada Revenue Agency is clear on what farming income is. When it comes time to preparing and filing taxes, farming income is any money that comes from these activities:
- Soil Tilling
- Raising Poultry
- Racehorse Maintenance
- Dairy Farming
- Raising and or Showing Livestock
- Fruit Farming
- Raising Fish
- Operating a Feedlot
- and other related activities
Below is a list of some of the tax breaks available to those who operate a full-time farm, part-time farm, and hobby farm.
Full-Time Farming Tax Breaks
To benefit from the many specific farming tax deduction, farming operations need to be classified. Someone who relies on farming for most of their income is considered to be a full-time farmer.
Full-time farmers can treat their farming operation like any other business. This means they can claim home expenses, if it’s used for business purposes, including:
- Property Taxes
- Maintenance Costs
- Capital Cost Allowance
- Home Insurance
Full-time farmers can also deduct all of their farm business expenses, from office supplies and stamps, to livestock purchases, seeds and feed, fertilizer and pesticide, crop insurance, machinery and machinery rentals, and interest on loans.
In addition to all the above mentioned tax deductions, full-time Canadian farms can report all losses in any given year. This doesn’t just include losses from the farming operation, it also includes other businesses or part-time jobs you may also have.
Best of all, for full-time Canadian farmers, losses can be deducted from your income from all sources and carried back 3 years or carried forward up to 20 years.
When applying farm losses to other years, the deducted amount cannot exceed the farms net income; losses can only reduce it to zero.
Part-Time Farming and Taxes
A farm is considered to be a part-time operation if there is a reasonable expectation of profit but, the operator’s main source of income does not come from farming.
Like a full-time farmer, a part-time farmer can claim deductions for home office expenses and farming business expenses. But unlike full-time farmers, part-time farmers can only deduct a portion of these expenses.
They can only claim a portion of any farm losses as well. As a part-time farmer, the maximum amount you can claim in any one year is $17,500. These losses can be carried back 3 years or forward 20 years and can only be deducted against farming income.
Hobby Farms and Tax Breaks
Your agribusiness is considered to be a hobby farm if farming is not run as a business but for personal reasons. If you operate a hobby farm it is not expected to be profitable, as a result, any farm losses are not deductible.
Direct expenses are claimed against any income from the farm activities up to but not exceeding the income declared.
If you ever intend to make a living from your farm, it’s important that you do not get classified as a hobby farm by the Canada Revenue Agency.
FBC, Helping Canadian Family Businesses Prepare and Reduce Their Taxes
No matter how much your farming business makes, it’s imperative that you know what tax deductions you can take advantage of.
The tax experts at FBC have worked exclusively with Canadian farmers and small business owners since 1952, helping them minimize their taxes and maximize their assets.
FBC is also unique in that it is the only firm in Canada to offer an integrated tax services on a year-round Membership basis. For a fixed fee, Members get access to our tax planning, tax preparation, consultation, bookkeeping, and financial planning services.
FBC also provides all new Members with a review of the previous 3 years’ tax returns.
For more information on FBC and the services we offer, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.